was digging more details yesterday on PayTM. Few things I learnt:
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Money making from payments business is extremely challenging – per transaction it makes approx 7 to 9 bps, and since UPI share keeps going up, it further will get reduced to 3 to 5 bps. One saving grace here is incentive from Govt. I have crossed checked payment margins for Infobeam Avenue (who owns CCAvenue) – they also have margins in 7 to 9 bps range right now.
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Another saving grace is core payment processing charges are more or less flat over last 2-3 qtrs while transaction volume keeps shooting up. however since most of it is UPI, there is not much hope of operating leverage kicking in unless Govt makes UPI chargeable (at least not for next 12 months with elections around)
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Merchant loans are more profitable for PayTM and have lower risk since it involves daily debit from total paytm transaction balance for the day (Unlike Paytm Postpaid or Personal loan which follow a monthly EMI cycle). This way PayTM gets early warning signal much faster and can deploy various strategies to nudge the Merchants to continue to pay in case of likelihood of default. However value of Merchant loans is still smaller compared to Personal Loan and PayTM Postpaid
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Transaction charges from loan collection services are received only after loan portfolio is closed. So this will be back ended for now
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Its employee costs are still going up at significant rate, they need to find a way to get control on the same.
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Unless they get more lending partners, they will get constrained with the amount of money available for lending and that can become a dampener on loan growth targets. They recently onboarded Shriram Finance and have said they are in touch with 2-3 more lenders. If any big banks become lending partner for merchant loans, that will be game changing!
Just my 2 cents to aid understanding on the fundamental side of business!
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